Commodities

Europe Gas Prices Remain Steady Amid Disruption of Flows Through Ukraine

By Geoffrey Smith

European energy prices experienced a slight decline by mid-morning on Wednesday, despite the significant development that physical flows of natural gas from Russia had been interrupted for the first time.

As of 5:30 AM ET (0930 GMT), the front-month contract—serving as a benchmark for north-west Europe—had dropped 2.3% from the previous day’s close, settling at 96.50 euros per megawatt-hour. Earlier in the trading session, prices had surged as high as 104.50 euros.

On Tuesday, Ukraine’s gas pipeline operator, Naftogaz, announced it would no longer oversee transit through areas occupied by Russian forces, alleging that gas was being illegally siphoned from the pipelines in Russian-controlled territories downstream of the Sokhranivka border point.

Previously, flows through Sokhranivka accounted for approximately one-third of the gas transported from Ukraine to the European Union.

Naftogaz CEO Yuriy Vitrenko stated via Twitter that Gazprom could redirect this volume to alternative interconnection points with Ukraine. However, reports indicated that although transmission through these alternative routes had increased, it did not fully make up for the volume lost from Sokhranivka.

There has been no clear indication from Gazprom of a deliberate decision to further reduce supplies. Earlier this month, the company had already cut supplies to Bulgaria and Poland, citing their refusal to pay for deliveries in rubles, a requirement instituted by a Russian presidential decree. The EU views this decree as a breach of contract.

Analysts caution that Russia may act more aggressively in enforcing the ruble-payment mandate and potentially cut supplies to more countries if the EU advances with its announced plans for an embargo on Russian oil and refined products by year-end. These plans are still under consideration due to resistance from Hungary and other central and eastern European nations that heavily rely on Russian energy supplies.

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